The Economics of Harmonizing European Law

The Economics of Harmonizing European Law

New Horizons in Law and Economics series

Edited by Alain Marciano and Jean-Michel Josselin

One of the major effects of the continual process of European integration is the growing importance of transnational institutions and the accompanying legal harmonization. Such institutional changes have led to a seemingly irreversible transformation in public decision making, whereby power at the national level is displaced to the European and regional levels. This essential book provides a law and economics analysis of the challenges arising from these shifts in authority.

Chapter 1: Regulatory competition or harmonization of laws? Guidelines for the European regulator

Roger Van den Bergh

Subjects: economics and finance, law and economics, law - academic, european law, law and economics

Extract

Roger Van den Bergh INTRODUCTION The academic debate on the merits of ‘regulatory competition’ versus ‘harmonization of laws’ offers useful guidance when decisions with respect to the appropriate level of government for particular legislative actions must be taken. Insights from this debate seem to have penetrated policy discussions to a greater extent in the United States than in the European Union. The regulatory competition-based argument for decentralized governance has been applied by its American proponents to diverse regulatory areas, such as corporate law (Winter, 1985), securities (Romano, 1998), antitrust (Easterbrook, 1983), and environmental law (Revesz, 1992). In Europe, regulatory competition theorists have argued that economic analysis may clarify the obscure principle of subsidiarity (Van den Bergh, 1994). If one takes the latter principle seriously, there should be a presumption in favour of decentralized regulation and powers should be granted to the institutions of the European Community, only when it has been established that they cannot be satisfactorily exercised by member states (Art. 5 EC Treaty).1 The subsidiarity principle thus makes competition between legislators the rule and centralized governance (unification, harmonization) the exception. Neoclassical welfare economics offers efficiency criteria supporting centralized law making: the need to internalize externalities across jurisdictions, the danger of a ‘race to the bottom’, the achievement of scale economies and the reduction of transaction costs. Economic distortions in the form of market imperfections on the European markets for legislation may thus justify (quasi-) federal rules. However, before jumping to the conclusion that centralization is needed to...

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